An improving economy helped boost ASB's annual net profit by 14 per cent to a record $806 million, but the bank's chief executive, Barbara Chapman, says bad-debt expenses are likely to begin trending upwards from their present low levels.

The Auckland-based lender, owned by Commonwealth Bank of Australia, yesterday reported loan impairment expenses of $56 million, which were unchanged from the previous year as a result of a strengthening economic environment and a robust housing market, especially in Auckland and Christchurch.

Previously, record low interest rates kept a lid on Kiwis' bad debts, but the Reserve Bank's tightening cycle on the official cash rate - it has risen by 100 basis points to 3.5 per cent this year - is likely to place additional stress on some borrowers.

Chapman said ASB could expect to see its annual impaired loan expenses drift back towards the $72 million the bank reported in the 2011 financial year.

"I'd say we're at the bottom of the cycle right now and we should realistically expect loan impairment expenses to increase just slightly over the years ahead," she said.

Shares in ASX-listed parent company Commonwealth Bank, Australia's biggest lender by market capitalisation, closed down A73c yesterday at A$80.96 after it reported a record cash profit of A$8.7 billion.

"This seems to suggest we might have passed the sweet spot in the asset quality cycle and that bad-debt charges could start to tick up marginally from here for the industry."

Chapman said more customers were opting for fixed-rate mortgages as interest rates increased.

"We went through a period when interest rates were extraordinarily low and we saw a lot of people were on floating-rate mortgages, but that's changing back to what we see as more normal market conditions."

Sixty-five to 70 per cent of ASB customers were now on fixed-rates, up from about 50 per cent a year ago, Chapman said.

She said the economic outlook for New Zealand remained favourable, despite falling global dairy prices and a reduction in Fonterra's forecast milk payout to farmers.

"Conditions are good and we think they'll stay good."

ASB said advances to customers rose 5 per cent to $60.7 billion, while customer deposits lifted 7.3 per cent to $44.3 billion.

Chapman said the lending growth was achieved despite high levels of competition in the home-loan market.

ASB reported a cash profit of $776 million, an 11 per cent increase on the previous year.

Cash profit is the bank's preferred measure of financial performance because it excludes items that introduce volatility or one-off distortions.